Which Investments to Choose with Inflation Set to Pick Up?

In late February, the U.S. Federal Open Market Committee’s meeting minutes showed increasing confidence in near to medium-term inflation, signaling more than three rate hikes may be on the table for 2018.

With a new Fed Chairman, Jerome Powell, at the reins, questions about how the Fed’s stance may change have abounded. In particular, investors have been searching for clues as to how aggressive or passive the central bank intends to be with monetary policy in the near-term. A more aggressive tightening stance could certainly impact financial markets, and as such, most market participants are on edge at this time.

Much of the language used during the recent meeting appeared to be overly upbeat, with economic improvements and concerns about inflation surfacing on multiple occasions.

Expectations that an interest rate increases is likely during the committee’s next meeting has prompted some to suggest a faster than anticipated rate hike schedule for this year.

For the average investor looking to hedge against any potential headwinds a faster rate hiking schedule would provide specific investments, focusing on companies which may benefit from rising interest rates is one place to start.

Financials tend to outperform in a rising interest rate environment; with rates hovering near all-time lows since the most recent recession, a steepening yield curve will bode well for those firms which make money on short-term vs. long-term rate spreads.

Coupled with U.S. tax breaks, lenders in the U.S. should outperform in this environment – check out some of my ETF picks for U.S. financials for more information.